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Monday, January 5, 2009

Oil, Another 'Trouble in Middle East' Bounce

A bounce to $50 and even $55 isn't excessive. Prices are now above the declining 20 day EMA (blue line) and should gravitate to the 50 day EMA (red line).

This is nothing but a technical bounce that happens to co-incide with the classic 'Trouble in the Middle East' trade. So don't get too excited.

Oil Curve Steeper Than '99 Shows Possible Gain in '09 (Update1): “The steepest plunge in crude prices on record may be setting up oil investors for a rally this year, if history is any guide.

The so-called forward curve of futures contracts traded on the New York Mercantile Exchange suggests oil will rise 28 percent to $60.10 a barrel by December. The curve looks almost the same as 10 years ago, after Russia’s default and the collapse of the Long-Term Capital Management LP hedge fund raised concerns that a global economic slowdown would reduce energy demand. Crude prices fell 25 percent in the final quarter of 1998, the steepest drop in seven years.

Bets on a recovery paid off then as the Organization of Petroleum Exporting Countries cut production 6.9 percent, causing prices to more than double in 1999. Now, OPEC is pledging to reduce supply 9 percent, companies from Royal Dutch Shell Plc to Valero Corp. are postponing new energy projects and central banks are cutting interest rates to end the worst financial crisis since World War II.”

The first Fib is far far away at around $77 and prices would likely require one hell of a geopolitical catalyst to get that high... Israel slapping Gaza around just isn't that catalyst.

Oil Rises a Third Day; Gaza Attacks Threaten Mideast Stability: “Crude oil rose for a third day after Israeli troops entered the Gaza Strip, escalating the conflict and threatening stability in the Middle East, the largest oil- producing region.

Oil gained after thousands of Israeli troops crossed the border on Jan. 3 to capture bases that Hamas militants have used to launch rocket attacks on the country. Saudi Arabia, which last month announced with fellow OPEC members the group’s biggest ever production cut, raised the price of all the crude types it exports to the U.S.”

Another way to play commodities of course is via the Canadian equity index or the various Canadian ETFs.

Canadian Stocks Have Best Start Since 1977 on Commodity Rally: “Canadian stocks notched their best first day of the year since at least 1977 as commodity producers rallied from last year’s record drop on higher oil and metals prices and prospects that government spending will spur demand.”


Anonymous said...

Dollar soaring again, commodities getting whacked again. Nothing new under the sun.